Pirelli & C — Investor Presentation 2018

Aug 7, 2018

1H 2018 RESULTS

DISCLAIMER_

In General. This disclaimer applies to this document and any oral comments of any person presenting it. This document, taken together with any such oral comments, is referred to herein as the "Presentation". This document has been prepared by Pirelli & C. S.p.A. ("Pirelli" or the "Company" and, together with its subsidiary the "Group"). The Presentation is being furnished to you for information purposes only and for use in presentations of the results and strategies of the Group.

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Forward-looking statement. ""Forward-looking statements" (which expression shall include opinions, predictions or expectations about any future event) that may be contained in the Presentation are based on a variety of estimates and assumptions by the Group, including, among others, estimates of future operating results, the value of assets and market conditions. These estimates and assumptions are inherently uncertain and are subject to numerous business, industry, market, regulatory, geo-political, competitive and financial risks that are outside of the Group's control. There can be no assurance that the assumptions made in connection with the forward-looking statements will prove accurate, and actual results may differ materially. The inclusion of the forward-looking statements herein should not be regarded as an indication that the Group considers the forward-looking statements to be a reliable prediction of future events and the forward-looking statements should not be relied upon as such. Neither the Group nor any of its representatives has made or makes any representation to any person regarding the forward-looking statements and none of them intends to update or otherwise revise the forward-looking statements to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the forward-looking statements are later shown to be in error.

No update. The information and opinions in this Presentation is provided to you as of the dates indicated and the Group does not undertake to update the information contained in this Presentation and/or any opinions expressed relating thereto after its presentation, even in the event that the information becomes materially inaccurate, except as otherwise required by applicable laws.

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No offer to purchase or sell securities. The information, statements and opinions contained in this Presentation are for information purposes only and do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of an offer to purchase or subscribe for securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments. None of the securities referred to herein have been, or will be, registered under the U.S. Securities Act of 1933, as amended, or the securities laws of any state or other jurisdiction of the United States or in Australia, Canada or Japan or any other jurisdiction where such an offer or solicitation would be unlawful (the "Other Countries"), and there will be no public offer of any such securities in the United States. This Presentation does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States or the Other Countries.

Rounding. Due to rounding, numbers presented throughout this Presentation may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.

This Presentation has been prepared on a voluntary basis since the financial disclosure additional to the half-year and annual ones is no longer compulsory pursuant to Law 25/2016 in application of Directive 2013/50/EU. Pirelli is therefore not bound to prepare similar presentations in the future, unless where provided by law.

Neither the Company nor any member of the Group nor any of its or their respective representatives, directors, employees or agents accept any liability whatsoever in connection with this Presentation or any of its contents or in relation to any loss arising from its use or from any reliance placed upon it.

Francesco Tanzi, the manager in charge of preparing the corporate accounting documents, declares that, pursuant to art. 154-bis, paragraph 2, of the Legislative Decree no. 58 of February 24, 1998, the accounting information contained herein correspond to document results, books and accounting records.

Non-IFRS and Other Performance Measures

This Presentation contains certain items as part of the financial disclosure which are not defined under IFRS. Accordingly, these items do not have standardized meanings and may not be directly comparable to similarly-titled items adopted by other entities.

***

Pirelli management has identified a number of "Alternative Performance Indicators" ("APIs"). These APIs (i) are derived from historical results of Pirelli & C. S.p.A. and are not intended to be indicative of future performance, (ii) are non-IFRS financial measures and, although derived from the Financial Statements, are unaudited and (iii) are not an alternative to financial measures prepared in accordance with IFRS.

The APIs presented herein are [EBIT, EBIT margin, EBITDA, EBITDA margin, net income and net income margin.

In addition, this Presentation includes certain measures that have been adjusted by us to present operating and financial performance net of any non-recurring events and non-core events. The adjusted indicators are EBITDA adjusted, EBITDA adjusted without start up costs, EBIT, EBIT adjusted, EBIT adjusted without start up costs,, net income adjusted.

In order to facilitate the understanding of our financial position and financial performance, this Presentation contains other performance measures, such as Fixed Assets related to continuing operations, Provisions, Operating Working Capital related to continuing operations, Net Working Capital related to continuing operations, Net Financial (liquidity) / debt Position.

These measures are not indicative of our historical operating results, nor are they meant to be predictive of future results.

These measures are used by our management to monitor the underlying performance of our business and operations. Similarly entitled non-IFRS financial measures reported by other companies may not be calculated in an identical manner, consequently our measures may not be consistent with similar measures used by other companies. Therefore, investors should not place undue reliance on this data.

KEY MESSAGES_

>

1H'18 RESULTS: PIRELLI'S HIGH VALUE BUSINESS MODEL PROVES VERY RESILIENT IN VOLATILE ENVIRONMENT

• ▬ High Value Market (HVM) growing faster than expected
• ▬ Pirelli gaining Market Share in HVM, thanks to very effective homologation pull-through
• ▬ Pirelli best-in-class in Price/Mix improvement, leading to solid EBIT margin expansion

INTENSIFYING AND ACCELERATING HIGH VALUE PROGRAMS

• ▬ Major High Value tyre homologation programs launched in China, Japan and Korea with local OEMs
• ▬ Focused product development innovation in Specialties
• ▬ Adjusting local High Value Capacity to future regional demand opportunities (e.g. strong High Value growth in Europe and in China) as well as to increasing tariff dynamics
• ▬ New integrated organization speeding up digital transformation programs

> FY'18 OUTLOOK

• ▬ Our Value drivers (Price/Mix and HV volume growth) are keeping the pace in line with our guidance
• ▬ Top line organic growth expected to be at 7% due to the accelerating reduction on Standard
• ▬ Profitability and Cash Flow confirmed and supported by higher price/mix contribution and lower cost impact.

1H'18 RESULTS HIGHLIGHTS & FY'18 OUTLOOK

1H'18 RESULTS IN DETAIL

APPENDIX

1H 2018 RESULTS

PIRELLI, GLOBAL HIGH VALUE

1H 2018 RESULTS HIGHLIGHTS_

€ million

NET INCOME before discontinued operations NET FINANCIAL POSITION

1H 2018 PERFORMANCE BY HIGH VALUE REGIONS_

1. Before amortization of PPA, non-recurring items, restructuring costs and other adjustments; 2. Standard & others (including Controlled Distribution & Other)

PIRELLI, GLOBAL HIGH VALUE

1H 2018 PERFORMANCE BY STANDARD REGIONS_

1. Before amortization of PPA, non-recurring items, restructuring costs and other adjustments; 2. Standard & others (including Controlled Distribution & Other)

PIRELLI, GLOBAL HIGH VALUE

OUR 3 PILLARS STRATEGY IS IN PROGRESS_

1H 2018 achievements

I	PILLAR 1: HIGH VALUE	▬ More than 200 High Value homologations, enriching our portfolio that now accounts 2,350 homologations, o/w 88% High Value
		▬ +1.5 million High Value capacity (Europe, NAFTA and LatAm) reaching 58% of total capacity
		▬ With Europe representing 46% of total High Value sales volume but 60% of global High Value production, started new program to create higher local HV in China
		▬ Increasing last mile demand coverage: 55% of our sales in 1H made through Car Dealer, Pirelli Retail, and Tier 1 clients (51% in FY 2017)
	II
	PILLAR 2: TRANSFORMATION PROGRAMS	▬ Integrated Forecasting: Increasing adoption of Big Data tools for medium term Demand & Supply Planning ▬ Smart Manufacturing and Flexible Factory: development of digital apps to monitor and improve processes and lead-time ▬ Prestige: successful prototyping of new geo-localized sales force tool ▬ Supply Chain: increase service level starting from Prestige and key clients
	III PILLAR 3: STANDARD CAPACITY REDUCTION	Acceleration in Standard reduction: -2 million tyres Standard capacity (-6% vs. 2017 year end) ▬ ~60% of the reduction in LatAm, the remaining 40% in Europe and MEAI ▬ ~30% of the reduction is actually a conversion into High Value capacity

OUR COMPETITIVE EDGE BOOSTED BY AN ENHANCED HOMOLOGATION PORTFOLIO_

MARKED TYRES HOMOLOGATIONS

1H18 HOMOLOGATIONS ≥18" HIGHLIGHTS

APAC ON-GOING PROJECTS

Working with 19 local OEMs on ≥18" and E-vehicles

≥18" OUTGROWING THE STANDARD SEGMENT 10x

O.E. + REPLACEMENT ≥18" TYRE MARKET

million tyres

Standard segment: market lagging mainly due to South America and MEAI

Source: Company elaborations based on third party data relative to car market and on data provided by local associations of tyre producers; 2016 A market figures restated

FY 2018 OUTLOOK UPDATE_

	2017A	2018E (7 Aug. 2018)
€ million
Revenues High Value weight	5,352 58%	~€ 5.4 bln >60% (from ≥60%)	▬ Volumes: flat (vs. +2% ÷ +2.5 May guid.) ▬ High Value Volumes: ≥+13% (confirmed) ▬ Standard volumes: ~-9% (-6% ÷ -5% May guid.) ▬ Price/Mix: +6.5% ÷ +7.5% (confirmed) ▬ FX: -6% ÷ -5% (-5% ÷ -4.5% May guid.) ▬ IFRS 152 : -0.6% (confirmed)
Adjusted EBIT w/o start-up1 High Value weight Start-up costs	927 ~83% 50	>€ 1.0 bln confirmed >83% (from ≥83%) ~40 confirmed	Top line impact (Standard Volume and FX) offset by: ▬ Higher P/Mix drop through (68%, ~+€15 mln vs. May guid.) ▬ Lower raw mat. headwind (from -€77 to -€60 mln) ▬ Cost reduction & Brazil recovery plan (~€20 mln)
Adjusted EBIT	876	~€ 1.0 bln confirmed
Net financial position / Adjusted EBITDA w/o start-up costs	2.7X	~2.3X confirmed
CapEx	489	~ € 460 mln confirmed

1 Before amortization of PPA, non-recurring items, restructuring costs, other adjustments and start-up costs; 2. In accordance with IFRS 15 (starting from January 1st, 2018), some costs for variable considerations paid or payable to indirect customers and mainly linked to achieving sale targets are recognized as a reduction of revenues

1H'18 RESULTS HIGHLIGHTS & FY'18 OUTLOOK

1H'18 RESULTS IN DETAIL

APPENDIX

PIRELLI, GLOBAL HIGH VALUE

1H 2018 RESULTS

1H 2018 NET SALES BRIDGE_

€ million

1. In accordance with IFRS 15 (from January 1st, 2018), some costs for variable considerations paid or payable to indirect customers and mainly linked to achieving sales targets are recognized as a reduction of revenues

o/w organic

1H / 2Q 2018 OPERATING PERFORMANCE_

1H 2018 NET INCOME BRIDGE_

1. Mainly related to gains from re-pricing of unsecured facilities

1H 2018 CASH FLOW AND NET FINANCIAL POSITION_

€ million

CURRENT CAPITAL STRUCTURE (JUNE 2018)_

€ million

1H'18 RESULTS HIGHLIGHTS & FY'18 OUTLOOK

1H'18 RESULTS IN DETAIL

APPENDIX

PIRELLI, GLOBAL HIGH VALUE

1H 2018 RESULTS

1H / 2Q 2018 RESULTS HIGHLIGHTS_

€ million

	2Q'17	2Q'18	Δ YoY	1H'17	1H'18	Δ YoY	2Q Highlights
Revenues	1,346.0	1,320.0	-1.9%	2,685.3	2,630.3	-2.0%	Sound organic growth on the back of:
Organic Growth1			+5.3%			+5.5%	▬ Strong High Value volumes (+13.4%), with
High Value Revenues	786.9	849.9	+8.0%	1,562.3	1,683.7	+7.8%	market share increase in Car ≥18", and strong demand for Specialties
Organic Growth1			+11.8%			+12.7%	▬ Reduction of the exposure to Standard
% on total Revenues	58.5%	64.4%	+5.9 pp	58.2%	64.0%	+5.8 pp	(volumes -12.1%), in a context of market slowdown, especially in LatAm after the
EBITDA adjusted w/o start-up costs2	285.1	310.3	+8.8%	566.8	608.3	+7.3%	Truckers' strike
Margin	21.2%	23.5%	+2.3 pp	21.1%	23.1%	+2.0 pp	▬ Solid price/mix (+6.2%)
EBITDA adjusted3	276.0	299.8	+8.6%	546.4	587.9	+7.6%	▬ Negative FX (-6.6%) in a context of volatile emerging markets currencies
Margin	20.5%	22.7%	+2.2 pp	20.3%	22.4%	+2.1 pp
EBIT adjusted w/o start-up costs2	223.5	243.9	+9.1%	443.0	473.3	+6.8%
Margin	16.6%	18.5%	+1.9 pp	16.5%	18.0%	+1.5 pp
EBIT adjusted3	211.2	231.7	+9.7%	416.2	450.1	+8.1%	▬ EBIT adj. improvement due to internal levers ▬ EBIT margin adj. w/o start-up at 18.5%
Margin	15.7%	17.6%	+1.9 pp	15.5%	17.1%	+1.6 pp	(+1.9pp YoY)
EBIT	149.5	193.7	+29.6%	318.2	377.7	+18.7%
Margin	11.1%	14.7%	+3.6 pp	11.8%	14.4%	+2.6 pp
Results from Equity Investments	(9.8)	(5.3)		(12.9)	(4.5)
Financial Income / (Charges)	(149.4)	(62.8)		(226.4)	(118.0)
EBT	(9.7)	125.6		78.9	255.2		▬ Lower financial charges thanks to a lower cost of debt
Tax Rate	n.m.	28.7%		14.3%	28.7%		▬ Tax rate in line with FY'18 targets
Net Income before disc. operations	18.1	89.5		67.6	181.9
Net Income adjusted before disc. operations	83.3	119.3		159.0	232.6

1. Excl. FX / perimeter; 2. Before non-recurring items, restructuring costs, other adjustments and start-up costs; 3. Before amortization of PPA, non-recurring items , restructuring costs, other adjustments

1H PIRELLI BALANCE SHEET_

€ million

	30/06/20171	31/12/2017	30/06/2018
Fixed assets related to continuing operations	9,132	9,121	8,881
Inventories	937	941	983
Trade receivables	968	653	864
Trade payables	(1,140)	(1,674)	(1,052)
Operating net working capital related to continuing operations	766	(80)	796
Other receivables / payables	190	(42)	113
Net Working Capital related to continuing operations	956	(123)	909
Net invested capital held for sale	n.a.	61	39
Total net invested capital	10,087	9,059	9,829
Equity	4,057	4,177	4,323
Provisions	1,853	1,664	1,589
Net Financial Position	4,177	3,219	3,917
Total financing and shareholders' equity	10,087	9,059	9,829
Attributable net equity	4,000	4,117	4,243

1. Carve-out figures

1H PIRELLI GROUP CASH FLOW_

€ million

	1H'17 (carve-out)	1Q'18	2Q'18	1H'18
EBIT adjusted1	416	218	232	450
Depreciation & Amortization (excl. PPA amortization)	130	70	68	138
Capital expenditures	(216)	(85)	(94)	(179)
Change in working capital / other	(768)	(929)	(69)	(998)
Operating Cash Flow	(438)	(726)	137	(589)
Financial income / (expenses)	(226)	(55)	(63)	(118)
Taxes paid	(52)	(31)	(36)	(67)
Financial investments	(2)	-	-	-
Financial asset disposals	-	155	-	155
shares2 Purchase of Pneuac	-	(19)	-	(19)
Cash-out for non recurring items and restructuring costs	(17)	(38)	(12)	(50)
Minorities	(6)	-	-	-
Exchange rates difference / other	(16)	(12)	6	(5)
Net cash flow before extraordinary operations	(757)	(726)	33	(693)
Industrial reorganization	352	5	(10)	(5)
Capital Increase	1,189	-	-	-
Net cash flow	784	(720)	22	(698)

1. Before amortization of PPA, non-recurring items, restructuring costs and other adjustments; 2. 2 nd tranche for the acquisition of 36% stake in Pneuac in September 2017 to reach 100% of the company

2018E RAW MATERIAL GUIDANCE_

2018E FOREX GUIDANCE_

€ million

KEY CAR MARKET TRENDS: EUROPE_

Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement

KEY CAR MARKET TRENDS: NAFTA_

Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement; 1. NAFTA Replacement includes imports

KEY CAR MARKET TRENDS: APAC_

Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement

KEY MARKET TRENDS: RUSSIA & CIS AND SOUTH AMERICA_

Source: Pirelli tyre market estimates based on main data provider for the Region; historical market data may be subject to restatement; 1. South America Replacement restated to include Brazilian imports

RAW MATERIAL COSTS TREND AND MIX_

MAIN RAW MATERIALS PRICE TREND

1H 2018 MIX (BASED ON PURCHASING COST)

PIRELLI MANUFACTURING FOOTPRINT AS OF JUNE 30TH 2018